How To Protect Software IP: Copyrights, Patents, or Trade Secrets?

What is the best way to protect my software intellectual property? The
short answer is that it depends on the nature of the software and how
it will be used.

Copyrights

A copyright is a legal concept that gives the creator of an original work
an exclusive right to use and distribute the work for a limited period
of time. Copyrights arise automatically when a work is created and fixed
in tangible form; however, federal registration of the copyright with
the federal government makes enforcement easier and the potential damages
larger. Generally, in the U.S., copyright protections extend up to 70
years after the death of the creator.

Federal registration is easy and inexpensive, but the main reason to copyright
software is that it enables the creator to sue infringers in federal court.
Additionally, federal registration enables one to collect damages for
attorney's fees and statutory damages up to $100,000; without registration,
a creator can only sue for actual damages, which may be very difficult
to quantify and prove.

Whereas obtaining patents may cost $10,000-15,000, federal copyrights can
be obtained for less than $500. However, copyright protection is very
narrow, only protecting the actual software source or object code. Copyright
protection does not protect against the independent creation of similar
works. Patent protection, on the other hand, is much broader, protecting
"any new and useful process, machine, manufacture, or composition
of matter, or any new and useful improvement thereof." Additionally,
if someone else wants to get a patent on their software, they must show
that it is not an obvious variation of the patent.

If your software is a significant advance in software engineering and meets
the requirements for obtaining a patent, you should strongly consider
patent protection. All other software should be copyrighted.

Patents

As mentioned above, patents provide much broader protection than copyrights,
but are also much more expensive. Patents protect the idea and function,
not just the original expression of the creator.

According to the USPTO, a patent is an intellectual property right granted
by the US government to an inventor to "exclude others from making,
using, offering for sale, or selling the invention throughout the United
States or importing the invention into the United States." This property
right is only granted for a limited time (20 years from the filing date
for a utility patent). Additionally, the grant of the property right is
in exchange for public disclosure of the invention.

Recently, there has been much debate over whether software is even patentable.
In 1996, the USPTO issued guidelines stating that "A practical application
of a computer-related invention is statutory subject matter." In
recent years, patents have been granted for business methods implemented
in software. (See my previous post on the Supreme Court's recent decisions regarding
software patentability)

Two key issues must be considered when deciding to pursue software patents.
First, software patents are quite expensive and time consuming to write.
The inventor must justify the benefit of having the software patent to
cost of obtaining and maintaining it. Second, the inventor must be willing
to make the software program publically available. All patents are listed
in the Official Gazette and can be searched very easily. If the software
is internal to the company (i.e. not public facing) and is seen as a competitive
advantage in the marketplace, then it may make more sense to keep the
program a trade secret (discussed below).

Trade Secrets

Trade secrets are secrets kept within a company that are economically valuable.
To have a trade secret, it must actually be a secret and the company must
take steps to maintain that secrecy. Trade secrets are maintained through
Non-disclosure Agreements (NDA) and Confidentiality Agreements, Employment
Agreements, and Licensing Agreements.

Unlike patents, there is no public publication of trade secrets. In addition,
there is no up-front cost of obtaining a trade secret. Another advantage
of a trade secret is that it is infinite if maintained properly, whereas
copyright and patent protection is time bound.

On the other hand, the hidden costs of maintaining trade secrets can be
significant (i.e. the agreements noted above, computer security systems,
etc.). In addition, if the program is public facing and can easily be
reverse engineered, trade secrets provide no protection. In these cases,
the inventor must obtain patent and copyright protection to keep competitors
from copying their programs.

The information on this website is for general information purposes only.
Nothing on this site should be taken as legal advice for any individual
case or situation. This information is not intended to create, and receipt
or viewing does not constitute, an attorney-client relationship. Dossey & Jones PLLC is not an accounting or CPA firm.

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